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This news outlet was the first to report online Monday about AK Steel’s historic acquisition deal. Follow us for unbeatable coverage of Butler County’s largest manufacturer.
Calling it a “truly transformational” expansion for AK Steel, Chief Executive Officer James Wainscott said a $700 million deal announced Monday morning for the company to acquire a steel plant in Michigan carries several benefits for investors, employees and other stakeholders.
Among those benefits, Wainscott said, are:
• Increased productivity: last year, AK Steel produced and shipped approximately 5.6 million tons of steel. Estimates are that once the new deal closes to buy Severstal North America’s Dearborn, Mich., steel plant, production could reach historic levels of about 7.7 million tons a year.
• Operational efficiencies: adding an eighth steel plant in a complementary business — producing flat-rolled carbon steels for the automotive market, which AK Steel already makes in Middletown — would reduce redundant overhead costs, create transportation and logistical synergies, and provide the company more flexibility to fill customer contracts. AK Steel says it expects annual savings of $50 million as a result, including $25 million the first year after the transaction closes.
• Boost to the bottom line: Pending regulatory approval of the acquisition, the deal could lift the Fortune 500 steelmaker’s revenues from $5.6 billion at the end of 2013 to annual sales of about $7.6 billion, projections show. Wainscott assured investment analysts Monday that the deal would add to earnings within the first year, with double-digit percentage gains.
“It allows us to grow our business profitability and better serve our customers now and in the future,” said Wainscott, chairman, president and chief executive officer of AK Steel.
The surprise deal announced Monday expands West Chester Twp.-based AK Steel into Michigan. The Butler County steelmaker said it reached an agreement to buy Severstal North America’s steel plant in Dearborn, Mich., as well as a coke-making facility in West Virginia and ownership stakes in three joint ventures that process flat-rolled steel products.
Russian steel company Severstal is exiting the U.S. market, selling a pair of steel plants to AK Steel and Steel Dynamics Inc. for about $2.33 billion total. Steel Dynamics is acquiring a plant in Mississippi.
When two companies in similar business lines merge, it can lead to layoffs or reduced operations in duplicate areas. But Wainscott stressed Monday there are no plans to idle any of the Severstal operations that AK wants to purchase. Nor are there any plans for AK Steel to cease operations at any of its current steelmaking or steel finishing facilities, Wainscott said.
“AK Steel’s acquisition of Dearborn is… about expansion and optimization,” Wainscott said. “It furthers our automotive market strategy. It provides us with a northern carbon steel plant, one that’s located in close proximity to many of our customers.”
AK Steel Holding Corp. reported five consecutive years of net losses through the end of 2013, with $46.8 million of negative earnings last year.
Production was halted twice in the past 12 months when incidents shut down blast furnaces at AK Steel's Middletown Works and Ashland Works steel plants. The unexpected shutdown at Middletown Works in 2013 weighed on results, and this year's harsh winter and Ashland Works outage, also unexpected, cut into earnings at the beginning of this year.
More than $1.2 billion has been invested to overhaul the Dearborn facility since 2007 and that plant’s blast furnace was rebuilt, AK Steel leaders say.
Already, hopes were for a game-changing 2014 that returns the company to profitability this year or next due to an improving economy, high steel prices and new production of iron ore, a key raw material input.
With Monday’s deal, “We’re confident that the larger size and scale will help absorb fixed costs and it will help minimize the impacts of maintenance outages, both planned and unplanned, to better serve customer needs in the future,” Wainscott said.
More than 50 percent of AK Steel’s sales last year were related to the automotive market, said Andrew Lane, an equity analyst studying the metals and mining markets for Morningstar Inc. of Chicago, an investment research firm.
“You could say they’re investing in one of their core competencies. Their automotive steel sales were a bright spot across their portfolio last year,” Lane said.
“On the negative side, this is a company that already exhibits very high financial leverage,” Lane said.
AK Steel plans to finance the $700 million acquisition by borrowing money and through stock offerings.
“The company is already in somewhat of a very precarious position as far as their debt position. I have some concerns about the ongoing degree of leverage they’re going to maintain as a result,” Lane said.
Shares of AK Steel common stock hit a new year-long high in trading Monday of $9.14, before ending the day down more than 4 percent. Prices closed at $8.46 per share.
One of the Cincinnati-Dayton region’s largest publicly-held companies, AK Steel employs approximately 2,400 full-time workers in Butler County between operations in West Chester Twp. and the Middletown Works steel plant, the company’s largest steel plant.
Presently, AK Steel facilities in Ohio, Kentucky, Indiana, Pennsylvania and Minnesota employ more than 6,000 and produce flat-rolled carbon, electrical and stainless steels used by the automotive, appliance, construction and manufacturing markets.
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